Investment News

Have You Got Your Family Protected?

If you have a spouse or children, make sure you have adequate life insurance coverage. Here are 7 tips about life insurance.

1. There are two types of life insurance. You can either buy pure term insurance coverage, or a plan that can last a lifetime with various investment vehicles that can gain value and enjoy tax advantages while the policy remains in force. You can mix pure term insurance with an investment—in one policy, referred to as a universal life (UL) plan.

2. Lifetime plans can resolve estate-planning problems. With additional investment vehicles (some include the use of the life company's dividends) the cost of lifetime insurance coverage is higher. Yet the tax-free death benefit can solve estate-planning problems such as paying an estate's tax liability on capital gains.

3. What young families can afford. If you can't afford the premium for lifetime coverage, consider term insurance or a combination of both. Term plans are quite affordable. For example, at 5%, $1,000,000 will generate $50,000 annual interest as pre-tax income.

4. Buy enough insurance to meet your needs. Many families need $250,000 or more—even up to $1,000,000 during low interest periods—to generate adequate investment income if the breadwinner were to die.

5. Ask your advisor to do a capital needs analysis. You will want to replace the income of the life insured—either yourself or your spouse. It is easy to calculate the capital needed over any short or long period of time in any situation if the life insured were to die.

6. Buy lots of insurance when you are healthy. If you get high blood pressure or diabetes, or suffer from angina before you buy insurance, you may find that your premiums will be higher than for a healthy person. So buy as much as you can afford when you are younger, and healthier, if you have capital needs in relation to your dependents.

7. Tell the truth. Don't hide any medical or lifestyle facts about your health when applying. Otherwise your policy may be cancelled and not pay benefits.